Highlights

SGH reports are highly valued for helping clients understand and stay ahead of the news cycle on central banks and macro policy events that drive the global economies and financial markets.

SGH Macro Advisors hosts occasional roundtables and events for clients and senior policymakers. Contact us for more information.

2025
April 14, 2025
SGH Insight
China’s National Bureau of Statistics (NBS) will release Q1 2025 GDP data tonight US Eastern time, Tuesday morning local time with press conference to follow at 10:00 am. The release is expected by markets to register a solid 5.2% annualized growth rate, from 5.4% in Q4 2024 and 5.3% in Q1 2024.

As is customary, last Thursday, April 10, nine economic departments provided their own estimates for GDP to China’s State Council. These ranged from 5.0% to 5.4% and were clustered around 5.2% and 5.3%.

While these estimates are not typically perfect indicators for the actual data release, the NDRC, China’s economic planning agency, edged toward the higher side, at 5.3%, and we find it plausible that among other things the front loading of exports ahead of US tariffs may have helped boost the numbers to the higher side of the range.
Market Validation
Bloomberg 4/16/25
China’s economy showed surprising strength in early 2025 thanks to consumer subsidies and a rush of export shipments to beat tariffs, although an impasse with Donald Trump over the trade war is darkening its outlook and fueling calls for stimulus.

China’s gross domestic product grew 5.4% in the first quarter from a year ago, the government said Wednesday, more than a forecast of 5.2%. Both production and consumption indicated unexpected momentum in March, before massive US levies on Chinese goods kicked in this month.
Read Full Report
April 13, 2025
SGH Insight
The week begins with Federal Reserve Governor Chris Waller. Waller’s message of late has leaned dovish, focusing on his expectations for continued disinflation and eventually rate cuts. The March inflation data reinforces this view as it matches his suspicion that residual seasonality accounts for high inflation in January and February. Moreover, Waller has emphasized that tariffs are not inflationary though, importantly, he already conceded that the impact depends on size and implementation.

The Fed is locked in place. Fed speakers have stepped up the message that the focus now is on maintaining stable inflation expectations, and the underlying message is that effort could require rate hikes. At a minimum, the Fed doesn’t expect to change policy until the second half. Market participants, however, are not hearing that message yet; we think Powell will try to drive the point home this week. Volatile markets have not stopped the Fed from delivering that message. It’s looking like the Trump administration has ignited what amounts to an existential battle for a Fed that very well knows the mistakes of the 1970s.
Market Validation
New York Times 4/14/25
In a speech on Monday, Christopher J. Waller laid out two scenarios that may play out for Mr. Trump’s tariffs, which the Fed governor described as “one of the biggest shocks to affect the U.S. economy in many decades.” How these levies impact both inflation and growth will impact how soon the Fed can again lower interest rates.
If a recession appears to be taking shape, Mr. Waller said he would support the Fed cutting interest rates “sooner and to a greater extent” than initially expected.
The first scenario Mr. Waller laid out assumes that the average tariff imposed on U.S. imports remains around its current level of 25 percent for an extended period. The second assumes a more modest 10 percent universal tariff, as other levies are removed over time.
In both cases, Mr. Waller argued, the effects on inflation would not persist so long as expectations about future price pressures remained under control.

Bloomberg 4/16/25
Federal Reserve Chair Jerome Powell again stressed the central bank's focus on preventing potential tariff-driven price hikes from triggering a more persistent rise in inflation.
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem,” Powell said Wednesday in the text of a speech prepared for the Economic Club of Chicago.
Powell said policymakers would balance their dual responsibilities of fostering maximum employment and stable prices, “keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans.”
The remarks reinforce a message Powell has repeatedly emphasized, including most recently on April 4: Fed officials are in no hurry to change the central bank’s benchmark policy rate.
As they seek greater certainty about how President Donald Trump’s economic policies, especially on trade, will affect the US economy, Powell and other Fed policymakers have expressed support for holding rates steady.
“For the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.
Read Full Report
April 11, 2025
SGH Insight
Regarding US treasuries, according to a well-placed source in China, in repeating warnings (or less graciously, threats) that both the US stock and bond markets could face additional turbulence if the trade war with China were to continue to escalate,Beijing has already started to “dump a small part” of its US bond holdings.

Over the years, we have heard many threats at times of heightened tension from Beijing over selling their US bond holdings, only to be tempered by reality (blowback, market size, currency effects, etc.), even as the very gradual, long-term objective and process of rebalancing away from the US remains intact.

In reading the current situation, however, we would give this comment a bit more credence, most notably for how it is phrased, “a small part,” which can be read not as the usual chest thumping threats from hawkish quarters, but more as an “attention grabber” for Washington.
Market Validation
Bloomberg 6/18/25
Japan, the biggest foreign holder of Treasuries, saw its holdings tick up by $3.7 billion in April, to $1.13 trillion. China, which in March slipped to become the No. 3 foreign holder, behind the UK, had $757 billion of Treasuries in April, down $8.2 billion from the previous month. Belgium, whose holdings include Chinese custodial accounts according to market analysts, went up by $8.9 billion, to $411 billion.
Read Full Report
April 10, 2025
SGH Insight
According to Beijing, the head of China’s trade and economic team (at the director-general level) has already received a call from his counterpart on the US side to hold ministerial-level talks with the US. But Beijing has rejected talks for now, repeating China’s three-point position to the American counterpart.

Xi will pay a state visit to Vietnam, Malaysia, and Cambodia starting next Monday (April 14) with an intent to sign a series of economic, trade and investment cooperation agreements with the three countries.
Market Validation
CNN 4/11/25

As the rest of the world received a 90-day respite, Trump escalated tariffs on China, saying the US will now charge an extra 145% on all Chinese goods that arrive in the US. In response, Beijing ratcheted up its own tariffs on American goods Friday to 125%, and the country’s leader — who Trump is urgently working to engage — warned China was “not afraid” of a prolonged trade conflict.
In private discussions hours before China announced new retaliatory tariffs, the Trump administration warned Chinese officials against such a move, according to a source familiar with the discussions.
The Chinese were also told – once again – that Chinese President Xi Jinping should request a call with US President Donald Trump.

BEIJING - Reuters 4/11/25
Chinese President Xi Jinping begins a three-nation tour of Southeast Asia next week, his first overseas trip this year, aiming to consolidate ties with some of China's closest neighbours as trade tension escalates with the United States.

Xi will visit Vietnam from April 14 to 15, and Malaysia and Cambodia from April 15 to 18, state-run Xinhua news agency said on Friday, after the Chinese president pledged this week to deepen "all-round cooperation" with China's neighbours.
Read Full Report
April 09, 2025
SGH Insight
With the focus rapidly shifting to tax cuts, this 10% baseline will now provide Treasury and Congress some certainty around a floor for potential tariff revenue raise with which to push negotiations along between the Senate and House Republicans. As opposed to most media and Washington analysts, we expect these to proceed quickly.
Market Validation
Bloomberg 4/10//25
President Donald Trump’s drive to enact trillions of dollars in tax cuts and raise the federal debt is on track after he and congressional leaders successfully corralled House Republican lawmakers to approve a Senate-passed budget outline.
The 216-214 vote on the budget — which outlines the parameters for the tax cut and debt ceiling increase — was delayed a day so Trump and Republican congressional leaders could assuage a dissident group of conservative spending hawks pressing for deeper cuts in safety-net programs.
The president worked the holdouts by phone and in a White House meeting. House Speaker Mike Johnson held a press conference to declare himself “committed” to coming up with at least $1.5 trillion in spending cuts. And Senate Republican leader John Thune joined the speaker to announce “a lot of” Republican senators shared the goal, though he stopped short of a commitment.
It was enough.
With the budget approved, the way is open for a follow-on package to cut taxes by up to $5.3 trillion over a decade and raise the debt ceiling by $5 trillion, in exchange for $4 billion in spending cuts. Republicans can now pass Trump’s tax-cut agenda solely on GOP votes, bypassing the need for negotiations with Democrats.
Read Full Report
April 07, 2025
SGH Insight
Quick Follow Up
Bottom Line: This does not mean that we, or even Powell, think the next move will be a rate hike, and as we said last night, we wouldn’t advise anyone try to catch this falling knife. One of Powell’s goals at this juncture is to tamp down inflation expectations and provide the Fed more room to cut if (or when) the labor market turns. But we also think the takeaway is that the bar for cuts is higher than believed, which means conditions on the ground need to get decidedly uncomfortable to force a rate cut if inflation climbs as anticipated as tariffs pass through the economy.
Market Validation
Traders Trim Bets for Fed Rate Cuts to Three by 2026
By Kristine Aquino
Bloomberg 4/9/25
Traders have promptly scaled back their expectations for Fed rate cuts by early 2026, and now see three quarter-point reductions by then. Prior to Trump’s announcement of a tariff reprieve, there were at least four such moves fully priced in, so the market is clearly taking the news as a reason to believe there’s less urgency for policymakers to act to support growth for now.
Read Full Report
April 06, 2025
SGH Insight
Monday Morning Notes, 4/7/25
Powell can’t save financial markets alone here. Fiscal policy, especially ill-conceived fiscal policy, is a powerful force, a lesson learned in the wake of the pandemic. It will take a lot more than a 25bp or 50bp rate cut to fundamentally change the tide.

Financial markets need a substantial rehaul of President Donald Trump’s tariff strategy. The ball is rolling downhill now; haphazard, occasional tariff negotiations with small nations won’t be enough to stop it, nor can foreign governments trust the US to maintain any negotiated deal unless Congress takes back control of tariffs.

Over the weekend, however, the Trump administration dug in on its agenda. Still, it’s worth noting that in previous iterations of this cycle, Trump has often escalated and then backed down, except for tariffs on China.
Market Validation
Bloomberg 4/9/25
President Donald Trump announced a 90-day pause on higher reciprocal tariffs that hit dozens of trade partners after midnight, while raising duties on China to 125%.
The president’s about-face comes roughly 13 hours after higher reciprocal duties on 56 nations and the European Union took effect, fueling market turmoil and stoking recession fears. Trump came under massive pressure from business leaders and investors to reverse course.
“I have authorized a 90 day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10%, also effective immediately,” Trump posted Wednesday on social media.
Stocks surged the most since 2020 on Trump’s abrupt announcement, with the S&P 500 Index rising over 8%, with almost every company gaining, and the tech-heavy Nasdaq 100 jumping the most since 2008. Goldman Sachs Group Inc. economists rescinded their forecast for a US recession.
Countries that were hit with the higher, reciprocal duties that went into effect Wednesday will now be taxed at the earlier 10% baseline rate applied to other nations, with the exception of China, according to a White House official. Trump said that more than 75 countries had contacted his administration to negotiate on trade barriers and “have not, at my strong suggestion, retaliated in any way, shape, or form.”
Read Full Report
April 03, 2025
SGH Insight
We have not changed our Fed call in the wake of the latest tariff announcements. Given what we have on the table now in data and theory, we anticipate the Fed will hold its ground until the job market shows signs of strain and then to proceed by cautiously balancing between the two mandates. In theory, this is just more risk to both sides of the mandate. That speaks to the framework we have laid out, and against a May or June cut.

To be sure, we retain a healthy degree of caution. We can’t dig in too deeply here. It’s a long time to June, in theory this is a “sudden stop” type of shock, the Fed may need to manage a disorderly fall in risk assets, there exists the possibility of political pressure on the Fed, and the Fed may misread the nature of this shock as more transitory than it really is.

The path ahead for the Fed and markets depends on whether the Fed views Trump’s trade policies as a transitory shock, and whether that is the correct assessment.

This suggests that Powell will deliver a “hold steady” message in tomorrow’s speech. He can fall back on the story that the data is sufficiently strong that the Fed can remain on hold as it assesses the impact of tariffs in the context of the totality of fiscal policy.

That said, we expect Powell will backtrack on his dovish press conference inflation messaging. That messaging seemed ill-advised, and it didn’t reflect a consensus of FOMC participants. Repeating it will appear tone-deaf when inflation forecasts are now heading above 4%, deepen expectations of easier policy, and would signal that the Fed doesn’t take the price mandate seriously.

We advise market participants to watch for any sign from Powell regarding the Fed willingness to endure pain on the employment side of the mandate.

Market Validation
Bloomberg 4/4/25
Federal Reserve Chair Jerome Powell said the economic impact of new tariffs is likely to be significantly larger than expected, and the central bank must make sure that doesn’t lead to a growing inflation problem.
“While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” Powell said Friday at the Society for Advancing Business Editing and Writing annual conference. “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.”
Despite that view, in a question-and-answer session following his speech, Powell emphasized the central bank doesn’t need to hurry to adjust interest rates as policymakers wait for more clarity on the administration’s policies and their impact.

Bloomberg 4/4/25
Yields largely failed to react to Fed Chair Jerome Powell and stocks saw little relief from his speech. The initial read is that Powell has failed to support the market narrative of much easier monetary policy in the wake of tariffs. If anything, he seems to be trying to suggest a more hawkish reaction function.

Powell said the Trump tariff increases were larger than expected and that the same is likely to be true of the economic effects, which will include higher inflation and slower growth. If there are any equity traders who are hoping for a Fed put, they’re going to have to keep hoping.

Faster inflation with slower growth is any central banker’s least favorite cocktail, and faced with that combination, the Fed seems likely to be cautious. Powell said it was well-positioned to wait. However, the Fed would respond to a persistent inflation problem.
Read Full Report
March 31, 2025
SGH Insight
The Reserve Bank of Australia (RBA) will hold off on a March rate cut but likely tilt guidance toward a May easing using language as it starts to rebalance the Bank’s inflation concern with downside growth risk.

As is the case for a number of central banks, inflation and growth risks are now pulling in different directions, posing the likelihood the RBA will need to shift more clearly to protecting downside growth risks over the next several months.

We see the Bank cutting 25 bps in May and August 12 to around 3.50%, with the risk of another move in the second half of the year (see SGH 12/2/25; “RBA: Hawkish Cut, Shallow Path”). While that may be sufficient to buffer economic growth, the Bank will become increasingly attuned to the risk of a softer second half of the year amid ongoing trade fallout.
Market Validation
Bloomberg 4/15/25
The RBA flagged that a move may come as soon as next month. By the May 19-20 meeting, the board will have
additional data on the labor market, inflation, household spending, a fresh set of staff forecasts as well as “further
information about the likely evolution of global trade policies,” the minutes showed. “Collectively, this information
would have a considerable bearing” on the decision, it said.
Read Full Report
March 30, 2025
SGH Insight
Monday Morning Notes, 3/31/25

We have been on the road this past week, and here is what we have been discussing with clients:

· Tariffs, tariffs, tariffs. Trump’s tariffs policies are the single biggest shock hitting the US economy, and it’s a shock in two dimensions, magnitude and uncertainty. So far, the turmoil on Wall Street has not deterred Trump, and the Washington Post reported over the weekend that he is pushing his staff to be even more aggressive:

But Trump continues to muse to advisers that his administration should continue to escalate the trade measures and has in recent days revived the idea of a universal tariff that would apply to most imports, regardless of their country of origin, the people said, speaking on the condition of anonymity to describe private discussions.

In public and private, the president has said tariffs represent a win-win that will bring manufacturing jobs back to the United States and fill federal coffers with trillions of dollars in new revenue. He has also said he thinks he made a mistake in allowing advisers to talk him out of bigger tariffs during his first term, the people said, and that he thinks a single, simple duty on most imports could help prevent exemptions from weakening their impact. It’s unclear how seriously that proposal is being considered.

Trump’s drive to reorder the global economy through tariffs will not end anytime soon, presumably until the economic implications become too big to ignore politically. Prepare accordingly.
Market Validation
Bloomberg 4/3/25
Stocks were pummeled on Thursday, with the S&P 500 losing over 4.5% as the White House made clear that tariffs are here to stay. Meanwhile, volatility-targeting portfolios have another $15 billion to $20 billion of equity exposure to sell over the next few days, according to JPMorgan. The dollar fell along with precious metals. Crude futures tanked. OPEC+ unexpectedly increased oil supply by three times the planned amount in May to punish members who have been producing excess oil, particularly Kazakhstan and Iraq. The surprise move is seen as a deliberate effort to drive down prices. Treasuries rose, with the two-year yield dropping 15 bps as traders sought haven trades to escape the tariff aftermath. Elsewhere, Bitcoin fell over 4%. The next focus point will be Friday’s jobs report.
Read Full Report
March 21, 2025
SGH Insight
Despite all the uncertainty and the pullback in market pricing for cuts, we continue to lean toward another 25bps rate cut on April 17, from 2.5% to 2.25%, followed by a final cut to 2% on June 5.

If we were to have to choose between an April or June cut, we would lean to April as the cleaner and more logical choice, allowing the ECB to reassess at its next forecast round in June.
Market Validation
Wall Street Journal 4/17/25
The European Central Bank cut interest rates to offset the economic blow of tariffs, drawing the attention of President Trump, who urged the Federal Reserve to follow suit.
The ECB on Thursday lowered its key interest rate to 2.25% from 2.5%, its seventh cut in eight meetings, taking borrowing costs to their lowest level since early 2023. U.S. tariffs are expected to erode already-weak economic growth in the bloc, where struggling auto, luxury goods and high-end food and beverage companies are reliant on exports to America.
Read Full Report
March 18, 2025
SGH Insight
The Bank of Japan (BOJ) is almost certain to hold its policy rate steady at 0.5% this week though, as we have been writing, the case to raise rates on May 1 has been steadily building in the background.

Rising inflation, the latest bid by unions for wage increases and importantly, a higher yen, all have been supporting BOJ governor Kazuo Ueda’s bid to secure a “virtuous cycle” of wages and prices, so he can push the policy rate higher.

However Ueda’s caution to avoid rattling markets or signal that the Bank is stepping up the pace of its hikes is likely to limit his post March 18-19 meeting press conference comments to hints at the Bank’s readiness to hike again at a future meeting.
Market Validation
BBG 3/19/25
Ueda suggested the BOJ won’t necessarily wait much longer to
determine the impact from US trade policies before proceeding
with its next rate hike. He said the BOJ may be able to discern
how uncertainties on trade policies could affect its outlook in
early April by watching data such as sentiment gauges.
* This implies the BOJ could be in a position to build a case
that it’s safe to lift rates again as soon as its April 30-May 1
meeting.
* All in all, Ueda appeared to less worried about US factors
than he was in September, when the BOJ paused rate hikes due to
downside risks it saw in the US economy.
Read Full Report
March 16, 2025
SGH Insight
The SEP

We anticipate the SEP will reflect the standard theoretical impact of a supply side shock. The standard impacts are lower growth and higher unemployment and inflation. The Fed has more certainty about the nature of the shock than it did at the December FOMC meeting, and FOMC participants should incorporate that updated knowledge in their forecasts.

We think higher unemployment and inflation will offset each other and allow the median dots to remain the same as in December.

We see at least a 50-50 chance the Fed pauses QT at this meeting. The messaging around QT has been sloppy. On one hand, the Fed has rolled out a bunch of metrics to say that reserves are still abundant. On the other hand, the Fed sees that debt ceiling dynamics may temporarily make reserve less abundant. If the latter is a concern, it doesn’t make much sense to wait until the Fed is closer to a problem before pausing QT which argues for pausing at the beginning of April.

Powell can describe rising unemployment and inflation forecasts as having offsetting impacts on the policy rate projections; it’s simply the dual mandate in action. Higher unemployment is the pain necessary to ensure that inflation returns to trend.

Assuming the SEP follows our expectations, Powell may be asked to explain why the SEP continues to forecast rate cuts even with rising inflation forecasts. This isn’t easily explicable without a higher unemployment forecast. Without a higher unemployment forecast, the Fed needs to lower the expected number of rate cuts, otherwise the Fed’s reaction function will be perceived as more dovish and fuel inflation expectations.

There is no consensus for an imminent rate cut. With the data the Fed has on hand, the labor market is in balance and inflation threatens to be sticky above target. There is little room to consider a rate cut at the May meeting at this juncture; in Fed parlance, there is no hurry to cut rates (the hurry will come if initial claims start to rise). Powell can largely repeat his pre-blackout messaging.
Market Validation
Bloomberg 3/19/25
Federal Reserve officials held their benchmark interest rate steady for a second straight meeting, though they telegraphed expectations for slower economic growth and higher inflation.
The Federal Open Market Committee voted on Wednesday to keep the benchmark federal funds rate in a range of 4.25%-4.5%, and said it would further slow the pace at which it is reducing its balance sheet. Governor Christopher Waller, who supported holding rates steady, dissented from the decision over the balance sheet move.
In their fresh economic forecasts, officials raised the median estimate for so-called core inflation, which strips out volatile food and energy prices, at the end of this year to 2.8% from 2.5%. Their outlook for 2025 economic growth cooled to 1.7% from 2.1%.
They raised their estimate for unemployment to 4.4% by the end of this year, from the 4.3% they saw in December.

FOMC Press conference 3/19/25

Powell
Inflation is running around 2.5% for some time I do think with the arrival of the tariff inflation, further progress may be delayed. The SEP doesn't really show further downward progress of inflation and that's due to the tariffs coming in. So delayed but if you look at the forecast we do see ourselves getting back into the low 2s in 26 and down to 2 by '27. Of course highly uncertain. So I see progress having been made toward that and progress in the future. I think that progress is probably delayed for the time being.


>> QUESTION: If that's the case why are there cuts in the SEP for 2025? >> Again, people wrote down two cuts last time. And they look -- they wrote down -- you know meaningful decline in growth from 2.1 to 1.7 in 2025. A particular up in the unemployment rate so not much there. And so those two balance each other out. So people -- not everybody but on balance people wrote down similar numbers. The changes E aren't that big. Other factor as I mentioned is really high uncertainty. What would you write down? It's really hard to know how this is going to work out. And again, we think our poll is in a good place. We think it's a good place where we can move in the direction where we need to. But in the meantime it's really appropriate to wait for further clarity. And of course you know the cost of doing that given that the economy is still solid, are very low.

QUESTION: Ask standing here today would you surprised to pivot back toward rate cuts in May?
I think we are not going to be in any hurry to move. As I mentioned I think we are well positioned to wait for further clarity. Not in any hurry
Read Full Report
March 06, 2025
SGH Insight
A cut at the European Central Bank’s next meeting in April to follow the 25bps cut in its benchmark deposit ratetoday to 2.5% is clearly a decision that is very much up in the air. But although today’s press conference from ECB President Christine Lagarde was, in being fully noncommittal on future moves, a bit more hawkish than we had expected, we still lean toward expecting two more 25bps rate cuts from the ECB in April and June, to take the deposit rate down to 2%.

Where we would adjust our previous assessment is that an April cut may no longer follow in response simply to data that affirms further confidence in hitting the ECB’s latest inflation forecast. Most notably, that would mean further affirmation of continued gradual disinflation in core and services, which we expect. Rather, the Governing Council may need just a bit more rattling on the trade front, or on signs of continued consumer retrenchment, to get consensus for two more back-to-back cuts. We do think that will be coming.
Market Validation
AFP 4/17/25
The European Central Bank cut interest rates again Thursday amid fears that US President Donald Trump's stop-start tariff announcements could threaten growth across the eurozone.
ECB policymakers decided to lower the benchmark deposit rate by a quarter point for the sixth time in a row, leaving it at 2.25 percent.
Read Full Report
March 04, 2025
SGH Insight
Bottom Line: This week is shaping up to be a key moment for Federal Reserve Chair Jerome Powell. The Fed takes fiscal policy as given, and Powell needs to decide what that means in this environment. If Powell decides that Trump’s tariff salvos will soon wane, he will lean toward looking through tariffs as temporary and signal a willingness to adjust rates more quickly. We think, however, it is more likely than not that Bessent has disabused him of that notion, and he will follow the unified guidance of FOMC participants which is to push any rate decisions toward the back half of the year.
Market Validation
Bloomberg 3/7/25
Federal Reserve Chair Jerome Powell acknowledged increased uncertainty in the US economic outlook, but said officials don’t need to rush to adjust policy.
“Despite elevated levels of uncertainty, the US economy continues to be in a good place,” Powell said in remarks prepared for event Friday in New York hosted by the University of Chicago Booth School of Business. “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”
Read Full Report
February 23, 2025
SGH Insight
If You Don’t Have Time This Morning

For the Fed, risks are growing to both sides of the distribution. On one side, Trump-driven uncertainty is beginning to weigh on confidence, raising the risk that firms need to put investment and hiring decisions on hold until they see clarity on tariff policy and the federal budget. That raises the specter of the kind of coordinated pessimism that precedes periods of weaker growth. On the other side, inflation expectations have picked up, something that already keeps FOMC participants up at night as they ponder the impact of tariffs. The Fed doesn’t feel a need to address either side of the distribution for now. The Fed views the labor market as balanced and resilient and while inflation is off its peak, it’s still elevated. The Fed sees no urgency to act and is comfortable moving to the sidelines for the foreseeable future. It likely won’t cut rates in the coming months on inflation alone; rate cuts require that the Fed sees a threat to the employment mandate. That outcome strikes us as more likely than the possibility that the labor market overheats such that the Fed begins reversing last year’s rate cuts.
Market Validation
Bloomberg 3/19/25
In support of our goals today the federal market committee decided to leave our policy interest rate unchanged. We also made the technical decision to slow the pace of decline in the size of our balance sheet. I will have more to say about these decisions after briefly reviewing economic developments

QUESTION: Ask standing here today would you surprised to pivot back toward rate cuts in May?
Powell
I think we are not going to be in any hurry to move. As I mentioned I think we are well positioned to wait for further clarity. Not in any hurry
Read Full Report
February 20, 2025
SGH Insight
what will ultimately determine the rate path from March onwards will be the evolution of inflation. And in view of the divisions within the Executive Board, the February and March inflation reports will gain even greater importance.

In part due to base effects, the ECB expects services inflation to finally drop to levels compatible with its 2% target over the coming months. More importantly, there is widespread evidence that wage pressures are coming down dramatically. And on the activity side, there is a chance that the already modest expectations for 2025 growth will need to be revised down in March, yet again.
Market Validation
Bloomberg 3/7/25
Kazaks’s comments echo those of his French counterpart Francois Villeroy de Galhau, who said earlier Friday that “we need to be ready to act and react fast” amid “enormous uncertainty.”
Leaving aside sudden political shifts, the economy has largely behaved as expected, Kazaks said. But he also cautioned that the final verdict on whether price growth will return to 2% as quickly as expected isn’t in.
“So far, the dynamics and developments of inflation — give or take with the uncertainty — by and large have been in line with our forecast,” he said. “But the forecast also expects quite a sizable adjustment in services inflation in March. In April we will see whether it will have happened.”
Read Full Report
February 17, 2025
SGH Insight
If You Don’t Have Time This Morning

As we have expected since the beginning of the year, the Fed is positioning for an extended pause. FOMC participants are in no rush to again recalibrate interest rates. With growth solid, the labor market roughly in balance, and inflation still above target, the Fed is content to sit back and adjust policy, if necessary, only after it sees the impact of Trump policies.
Market Validation
Bloomberg 3/19/25
In support of our goals today the federal market committee decided to leave our policy interest rate unchanged. We also made the technical decision to slow the pace of decline in the size of our balance sheet. I will have more to say about these decisions after briefly reviewing economic developments

QUESTION: Ask standing here today would you surprised to pivot back toward rate cuts in May?
Powell
I think we are not going to be in any hurry to move. As I mentioned I think we are well positioned to wait for further clarity. Not in any hurry
Read Full Report
February 12, 2025
SGH Insight
The Reserve Bank of Australia (RBA) looks set to serve up its first rate cut in almost five years this month as the balance between considerations of keeping downward pressure on inflation without spiking unemployment, starts to tip toward downside growth risk.

The RBA will likely cut its cash rate 25 basis points to 4.10% at its February 17-18 forecast round meeting, accompanied by a slight reduction in its inflation forecasts if the most recent quarterly inflation data have confirmed its projections that further progress is likely.

The decision will not come without arduous Board debate and agreement to go it slow thereafter. Governor Michele Bullock’s press conference will center on that inflation-vigilant hawkish message.

The RBA will have to navigate its policy moves around this year’s Budget, scheduled to be handed down by the Anthony Albanese government on March 25, as well as yet-to-be-called Federal elections which must be held before May 17.

With speculation swirling among local politicos of potential election dates on April 12, May 3 or May 10, the RBA could skip an April 1 move yet still opt to ease rates again at its May 19-20 meeting.
Market Validation
Bloomberg 2/18/25
Australia’s central bank cut interest rates for the first time in four years as price pressures cool while stressing it won’t ease as aggressively as markets anticipate.
The Reserve Bank lowered its cash rate by a quarter-percentage point to 4.1% in a widely expected decision while warning in its statement Tuesday that reducing borrowing costs too quickly could result in disinflation stalling. It also flagged significant geopolitical and policy uncertainties globally.
Governor Michele Bullock, at the briefing that followed, reiterated that policymakers will be data-driven and cautioned the market against pricing in rate cuts in succession. Stocks extended their drop and closed 0.7% lower while yields on three-year government bonds rose further after her remarks.
“I want to be very clear that today’s decision does not imply that further rate cuts along the lines suggested by the markets are coming,” Bullock said in Sydney.
“The board needs more data and evidence that inflation is continuing to decline before making decisions about the future path of interest rates,” she said. “The board is very alert to upside risks that could derail the deflationary progress.”

SYDNEY, Reuters 4/1/25
Australia's central bank on Tuesday left its cash rate steady as widely expected but took a small step towards further easing in a policy meeting dominated by risks of a global trade war.
Wrapping up its April policy meeting, the Reserve Bank of Australia (RBA) held interest rates steady at 4.1%, having just cut them by a quarter point in February for the first time in over four years.
"Monetary policy is well placed to respond to international developments if they were to have material implications for Australian activity and inflation," the board said in a statement.
The statement also dropped an explicit reference to being cautious about cutting rates again, in a slightly dovish tone. It also omitted a sentence that upside risks to inflation remain.
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February 10, 2025
SGH Insight
In short, under “current law” scoring the Joint Committee on Taxation or Congressional Budget Office in its projections assumes tax cuts will expire as legislated and thus show savings after the expiry of certain elements of the 2017 TCJA. Extending the TCJA under that scoring would, in theory, “add” plus or minus $4 trillion of costs over a 10-year projection period.

Under “current policy” scoring, as the description suggests, the calculation is based on current policy, rather than legislation, and so simply extending the current TCJA policies would not add significant costs beyond technical adjustments here and there.

Importantly, there is precedent for using “current policy” scoring, including for example in the last administration when former president Joe Biden rejiggered some children’s assistance programs into new initiatives but at no new additional expense, and which raised no hackles from either side of the aisle.

So, the name of the game for Republicans may be not to offset the entire current law scored “cost” of the TCJA extension plus and real new costs of additional tax cuts, but to find perhaps $2 trillion or so in cost cuts over the standard 10-year projection period.

And so, despite Trump’s statement at Friday’s press conference with Japanese Prime Minister Shigeru Ishiba that he was now leaning more towards targeted “reciprocal” tariffs than a universal tariff, it seems clear to us that substantial revenue will need to be raised via tariffs no matter how these are labeled.

In other words, we do not expect “reciprocal” tariffs to be as modest as might be inferred from effective tariff rate differentials between the US and its major trading partners.

Rather, we expect the Trump administration will also factor heavily for non-tariff barriers, from China’s subsidies of domestic enterprises to the European Union’s heavy use of Value-Added Taxes (VAT) that effectively tax imported and other domestic consumption goods but are not applied to exports.

And finally, regarding the initial 25% tariff lobbed against Mexico and Canada for their lack of action in stemming the flow of fentanyl and migrants across the US border, which was delayed by 30 days after promises to cooperate, many in Washington think that may have been a dry run of the president’s powers under the IEEPA (International Economic Emergency Powers Act) for potential future tariffs as well.

In short, under “current law” scoring the Joint Committee on Taxation or Congressional Budget Office in its projections assumes tax cuts will expire as legislated and thus show savings after the expiry of certain elements of the 2017 TCJA. Extending the TCJA under that scoring would, in theory, “add” plus or minus $4 trillion of costs over a 10-year projection period.
Market Validation
Bloomberg 2/12/25
House Republican leaders took the first step Wednesday toward enacting trillions of dollars in tax cuts and raising the nation’s $36 trillion debt limit, offering a plan that risks rankling quarreling factions in the party.
The proposal aims to smooth the passage of President Donald Trump’s top legislative priorities: the extension of expiring individual and business tax passed in 2017, boosting defense and border security spending and cuts to non-defense spending.
Passing any measure is far from certain, given Republicans’ narrow and fractious majority. Democrats are expected to be unified in opposition.
The budget would allow Congress’s tax-writing committees to increase the deficit by $4.5 trillion to accommodate tax cuts and calls for $2 trillion in cuts to mandatory spending such as Medicaid and farm subsidies.

Bloomberg 2/13/25
President Donald Trump ordered his administration to consider imposing reciprocal tariffs on numerous trading partners, raising the prospect of a wider campaign against a global system he complains is tilted against the US.
The president on Thursday signed a measure directing the US Trade Representative and Commerce secretary to propose new levies on a country-by-country basis in an effort to rebalance trade relations — a sweeping process that could take weeks or months to complete. Howard Lutnick, Trump’s nominee to lead the Commerce Department, told reporters all studies should be complete by April 1 and that Trump could act immediately afterward.
Fresh import taxes would be customized for each country, meant to offset not just their own levies on US goods but also non-tariff barriers the nations impose in the form of unfair subsidies, regulations, value-added taxes, exchange rates and other factors that act to limit US trade, said the official, who briefed reporters before the announcement.

Finance Chair Mike Crapo (R-Idaho) told reporters Wednesday that he’s still insisting Republicans should use a budget tactic — known as the current policy baseline — that would make it appear like extending the expiring tax cuts costs nothing.

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The Senate complaints highlight another significant rift House and Senate Republicans will have to resolve in order to pass legislation with all of Trump’s policy priorities. Beyond extending the tax cuts he presided over in 2017, Trump has called for numerous other measures, including exempting tips and overtime pay from income tax.

"We need a current policy baseline and then from there we develop the numbers that we need,” said Crapo. “The House has to get a position that it can deliver the votes on. The Senate has to get a position that we can deliver the votes on, and then we see from there how we build the bill.”
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